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Trade‐in for Cash or for Upgrade? Dynamic Pricing with Customer Choice

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  • Yongbo Xiao
  • Sean X. Zhou

Abstract

Trade‐in programs for electronics products, e.g., mobile phones, have been increasingly popular. These programs target at customers (we call them “bargainers”) who seek to salvage or upgrade their old devices. There are two widely adopted trade‐in options: trade‐in‐for‐upgrade and trade‐in‐for‐cash. In this study, we consider a firm who offers both trade‐in options, that is, a hybrid trade‐in program, to acquire old products, then refurbishes and resells them, together with new product over a finite selling horizon. The bargainers choose which option to trade in their products while new customers decide whether to buy a new product or a refurbished one. When the selling price of new product is exogenous, we derive the optimal trade‐in prices of old product and resale price of refurbished product. We show that the optimal trade‐in and resale policies are of a threshold‐type and trade‐in‐for‐upgrade should be offered with a premium refund (compared to trade‐in‐for‐cash) only in early periods of the selling horizon. We further consider two variants of the above base model. In the first extension, the new product has a fixed amount of initial inventory and is not replenishable during the selling horizon. In the second extension, the new product price can also be determined by the firm. Our numerical results demonstrate that the hybrid trade‐in program could generate significantly more profit than either upgrade‐only or cash‐only trade‐in program.

Suggested Citation

  • Yongbo Xiao & Sean X. Zhou, 2020. "Trade‐in for Cash or for Upgrade? Dynamic Pricing with Customer Choice," Production and Operations Management, Production and Operations Management Society, vol. 29(4), pages 856-881, April.
    • Handle: RePEc:bla:popmgt:v:29:y:2020:i:4:p:856-881
    DOI: 10.1111/poms.13140
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    Cited by:

    1. Chang Dong & Yong Lei & Qian Liu, 2023. "(Un)conditional collection policies on used products with strategic customers," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 82-97, January.
    2. Fei Tang & Ying Dai & Zu‐Jun Ma, 2023. "Optimal joint trade‐in rebate strategies in a retailer‐led supply chain," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 399-415, January.
    3. Dong, Rong & Wang, Nengmin & Jiang, Bin & He, Qidong, 2023. "Within-brand or cross-brand: The trade-in option under consumer switching costs," International Journal of Production Economics, Elsevier, vol. 255(C).
    4. Hu, Shu & Zhu, Stuart X. & Fu, Ke, 2023. "Optimal trade-in and refurbishment strategies for durable goods," European Journal of Operational Research, Elsevier, vol. 309(1), pages 133-151.
    5. Cao, Kaiying & Su, Yunyi & Han, Guoxin & Choi, Tsan-Ming, 2022. "Is it wise to offer rebates for unused extended warranties under trade-in programs in supply chains?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 167(C).
    6. Guojun Ji & Zhongfeng Sun & Kim Hua Tan, 2021. "Collaborative Rebate Strategy of Business-to-Customer Platforms Considering Recycling and Trade-Ins Simultaneously," Sustainability, MDPI, vol. 13(4), pages 1-19, February.
    7. Yan Liu & Ningyuan Chen, 2022. "Dynamic Pricing with Money‐Back Guarantees," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 941-962, March.
    8. Haitao Chen & Qiang Xu & Zhaohui Dong & Hetian Zhao, 2023. "Recycling Versus Leasing in Closed-Loop Supply Chain: A Comparative Analysis Anchored on Consumer Ownership Perceptions," SAGE Open, , vol. 13(4), pages 21582440231, December.
    9. Xingchen Li & Jinxing Xie & Tingting Li, 2023. "Trade-in strategy for durable products in the presence of a peer-to-peer second-hand marketplace," Annals of Operations Research, Springer, vol. 326(1), pages 223-260, July.
    10. Chu, Xiang & Wang, Rui & Lin, Yan & Li, Yantong, 2022. "Building trust in online trade-in programs with a blockchain-enabled system," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    11. Liang Shen & Runjie Fan & Zhaoqing Yu & Yuyan Wang, 2021. "The Service Strategy and Influencing Factors of Online Recycling of Used Mobile Phones," Mathematics, MDPI, vol. 9(21), pages 1-24, October.
    12. Zhao, Senlin & You, Zhuangzhuang & Zhu, Qinghua, 2022. "Effects of asymmetric cost information on collection outsourcing of used products for remanufacturing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 162(C).
    13. Li, Sijie & Jia, Dongfeng & Zheng, Bin, 2022. "The manufacturer’s trade-in partner choice and pricing in the presence of collection platforms," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 168(C).
    14. Zhao, Senlin & You, Zhuangzhuang & Zhu, Qinghua, 2021. "Quality choice for product recovery considering a trade-in program and third-party remanufacturing competition," International Journal of Production Economics, Elsevier, vol. 240(C).
    15. Kaiying Cao & Tsan‐Ming Choi, 2022. "Optimal Trade‐in Return Policies: Is it Wise to be Generous?," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 1309-1331, March.
    16. Li, Yongjian & Wang, Kun & Xu, Fangchao & Fan, Chunxing, 2022. "Management of trade-in modes by recycling platforms based on consumer heterogeneity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 162(C).

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